Amortisation is the process of spreading the cost of an intangible asset over its useful life. It is similar to depreciation but applies to non-physical assets like patents, trademarks and software.
Amortisation works like depreciation but for intangible assets. When your business acquires an intangible asset - such as a patent, trademark, copyright, software licence or goodwill from a business acquisition - you spread the cost over its useful life rather than expensing it all at once. This matches the cost to the periods in which the asset generates revenue. For example, if you purchase a software licence for $10,000 with a 5-year term, you would amortise $2,000 per year. Amortisation reduces your taxable income each year over the asset's life, providing a tax benefit spread over time. Some intangible assets have indefinite lives (like certain trademarks) and are not amortised but instead tested annually for impairment. In Xero, amortisation is recorded through journal entries, typically at month-end. SortBooks ensures these entries are correctly categorised and that your intangible asset balances are accurately reflected on the balance sheet.
SortBooks helps with the bookkeeping behind amortisation by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing amortisation by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It reduces taxable income each year and reflects the asset's declining value.
An intangible asset is a non-physical asset with economic value, such as patents, trademarks, copyrights, software, brand value and goodwill.
Goodwill is an intangible asset representing the excess amount paid for a business over the fair value of its identifiable net assets. It reflects the value of brand, reputation and customer relationships.
The balance sheet is a financial statement that shows your business's assets, liabilities and equity at a specific point in time. It follows the equation: Assets = Liabilities + Equity.
A journal entry is a record of a financial transaction in the accounting system. It includes the date, accounts affected, amounts and a description of the transaction.
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